Get out of your adjustable rate mortgage while you can

March 19, 2007 | Mortgage | 6 comments

The mortgage industry is expected to see $112 billion in losses over the next 6 years due mainly to mortgages that are adjustable. Many of these loans had attractive low fixed rates for a short period but once that period expires the adjustment can leave homeowners with a much higher payment that is simply unaffordable.

The most common of these would be known as 2/28 or 3/27 ARM’s. These loans provided a rate lower that a 30 year fixed but for either 2 or 3 years. At the end of that period the rate adjustment is dramatic and many homeowners are not prepared for it.

Combine this payment shock with the stagnant real estate market and there is a certain problem on the horizon for those whose homes did not appreciate enough to qualify under the new lending guidelines. Many of the lenders have done away with 100% financing unless you have near perfect credit and at subprime rates which usually will not help the payment shock much.

If you have one of these loans you need to start preparing your credit profile well in advance of the first adjustment. If you have already received a notice from the lender indicating your adjustment is next month I suggest moving quickly. Feel free to contact me and I will be happy to help guide you in the right direction.

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Reader Comments

Pang on April 22, 2007 at 4:20 pm

Tom,

My husband and I owned a 5-plex. We were aware that we have an adjust rate mortgage for 3/20. Every three years it’ll adjust and stayed there until the next three years. Last week we received a notice that it’s time to adjust our rate, can’t remember but the 1.5% and the prime rate is 8.25% so I guess you add those together then it would be 9.75%. This coming month our monthly rent will be 2,359. Last three years our monthly rent was 1,988.00. Are there any different loans out there fixed life time with low interest rate? We were also thinking about refinance the 5 plex and cash out. Also can we refi the 5 plex 20 or 30 years fix rate?

Please reply back soon.

Tom Voli on April 23, 2007 at 7:50 am

Yes. I am doing one of these now. There are fixed rate 30 year mortgages for multifamily properties in the low 7% range. I really advise against the 3 year loans because of their volatility. I prefer to use banks that don’t sell the loans. It streamlines the process as well. I can handle this for you with ease. Call me at (949) 290 1795 and I will give you a few options.

Dean on May 19, 2007 at 9:28 am

Tom - I have a rental property in Phoenix that I purchased with an ARM that recently adjusted from $2200mo to $2900mo. I tried to refinance but had a recent 30-day late on my primary residence due to the increased rental property payment. I was told by my mortgage broker I need to wait a year to refi because no lender would give me a loan due to the 30-day late. My credit scores are all about 600 across the board.

Do I have any options to refi, or do I have to just bite the bullet until next year?

Thanks,

Dean

Tom Voli on May 19, 2007 at 6:34 pm

Dean,

1) There may be ways to rescore the credit and get a higher score.

2) There are loans that will allow for the 30 day late.

The object will be to get you into another short term fixed rate and have you pay on time for 2 yrs. This will put you into a good position. You won’t want to pay for a 30 yr fixed with your current score. Whether your goals are long term or short term it makes sense to use the 2 yr period to raise your scores to 720+ and THEN get an A paper long term product.

Call me at (949) 766 5054 and I can quickly help you assess if a program exists for your situation.

julie on June 18, 2007 at 12:06 pm

Tom- we have a 2 yr adjustable rate mortage. It currently is at 9.65%, interest only and will adjust 4/08. The problem is the equity in our house is only about $16,000. The other problem is we have been 30 days late for the last 5 months. The payments are killing us. My scores have dropped dramatically. Ive taken a second job to help with the payments. My question is will we be able to refinance with a fixed rate if we stay current from now, june 07 thru 4/08 when our adjustable rate is up? My scores now are in the mid 500’s. Or should we try to sell to avoid forclosure. We have Option One Mortgage and they are not very forgiving . Thanks Julie

Tom Voli on June 20, 2007 at 8:44 am

Julie,

There are lenders that will disregard the lates but not if the loan is over 95% loan - value. You are not alone in this position. It is very common these days. If you have 5% equity in the home it can be done.